Why Become a Chartered Financial Analyst (CFA)?
While a CFA program and certification concentrates on investment management and analysis, risk management, financial analysis, and financial planning, it is an extremely useful tool for accountants and anyone else in the financial industry. Employers usually recommend that accountants and other financial or investment professionals achieve a credential via passing the CFA certification exam and receiving the designation from the CFA Institute. It is certainly a way to advance your career. Obtaining this certification also opens access to the CFA network, which is a huge professional bonus for those involved in corporate finance, financial planning, investment banking, asset management and money management, and more. As a CFA and member of the institute, you'll find that you can greatly widen your career choices with the credential and also better access to training programs, job openings, general career advancement, and professional development opportunities. Potential employers know applicants have a solid understanding of financial analysis, as well as accounting if they have earned both a CPA and CFA. Because the material covered in the CFA exams is so intensive, many employers consider it the equivalent of having a master’s degree in finance. In fact, employers in the securities industry generally prefer a CFA with acceptable work experience to an MBA degree program from a business school when evaluating applicants.
In many instances, an employer will reimburse the costs of the exams and study materials if you wish to gain this certificate and continue with your current employer, though they may require that you guarantee some period of work after the certificate is earned.
What is a Chartered Financial Analyst (CFA)?
A CFA examines data in detail to determine company health, real world business opportunities or investment possibilities, and come up with a future financial plan or policy changes to advise company leadership. Other names for this job are investment analyst or securities analyst. Their assessments of stocks, bonds, and other investment classes (such as a mutual fund) help guide financial decisions for businesses and individual investors and help a company perform risk management analysis. A primary goal is trend identification in particular businesses or markets so that they don't miss investment opportunities. It's important that individuals in a corporate finance position have strong soft skills, such as analytical skills, high professional standards, real world professional experience and expertise, a strict code of ethics, and a thorough body of knowledge to pull from.
Analysts on the buying side focus on creating investment decisions for companies looking to invest. Analysts on the selling side provide advice to financial professionals selling investments. These analysts may spend fair amounts of time traveling.
What Does a Financial Analyst Do?
Certified financial analysts often work for investment banking or other financial institutions in major cities, perhaps as a mutual fund or hedge funds manager or financial planner. The hours of a chartered financial analyst are often long but rewarding as they offer financial services or financial analysis. Depending on where they are in their career path, a junior financial analyst spends most of their working day gathering information and working with financial models. More experienced financial analyst analyze investments and work directly with clients. Senior analyst must also develop relationships within industries and businesses.
On a typical day, a certified financial analyst reviews the latest news relating to the industries they cover. Junior analysts might attend buy and sell side meetings to discuss the latest analysis. Senior analysts might meet with clients or present investment prospects to their firm. Throughout the day, they attend meetings, work on short and long-term projects, check in with trading desks when there is unusually high volume going on, and review earnings reports.
Other tasks include preparing written reports, company management team assessment, finding investment opportunities, and evaluating current economic trends. They may compile financial statements or engage in financial reporting, as well. Much depends upon the earnings and marketing calendar. The bottom line is that financial analysts live and breathe numbers. This is a career for someone who really enjoys translating mathematical information into a format easily digested by managers and investors and, as technology continues to develop, for those comfortable working within this new medium and with learning new tools as well.
Education Requirements to Become a Certified Financial Analyst
- Degree Necessary
You must earn an undergraduate degree to sit for the CFA exam. Most CFA candidates earn degrees from their university in finance, economics, business, accounting, mathematics, or a related field. This allows each student to learn everything they need to about corporate finance and have a handle on terms that will show up on the test while meeting the educational requirement for most financial certifications. While only a bachelor’s level of education is required for test takers, many CFA candidates go on to earn master’s degrees in business administration or finance in order to advance to top positions in portfolio and fund management. Since the field is competitive, graduate degrees and certifications play a critical role in a candidate’s ability to land a top position.
- Subject Focus
The CFA exam focuses on numerous topics. These include:
- Alternative Investments:
These investments do not consist of cash, stocks, or bonds. They include real estate, commodities, hedge funds, venture capital, art, and other investment assets. Overall, alternative investments are less liquid than their conventional counterparts.
- Corporate Finance:
This type of finance deals with corporate investment decisions, including capital structuring. The primary focus is on the maximization of shareholder value.
A derivative consists of a contract between two entities deriving value and price from an underlying asset. Futures, options, swaps, and forwards are the most typical types of derivatives.
The social science focusing on production, consumption, and wealth transfer.
- Equity Investments:
Investment of shares in a company’s stock usually traded on the stock exchange.
- Ethics and Professional Standards:
Those earning a CFA must follow the standard of professional conduct and ethics, including understanding and complying with applicable laws and possession of independence and objectivity.
- Financial Reporting and Analysis:
This information provides stakeholders with accurate assessments of company finances on which to make investment decisions.
- Fixed Income:
Investment based on capital preservation, usually consisting of government bonds, corporate bonds, certificates of deposit, and money market funds. These types of investments do not offer the return of stocks but also do not pose the same risks.
- Quantitative Methods:
Analysis of financial events using sophisticated statistical and mathematical modeling.
- Portfolio Management:
Oversight and management of an investment portfolio for private investors or companies. It includes asset allocation determination, investments geared to client objectives, and risk management.
- Alternative Investments:
There are three CFA examinations in total: Levels I, Level II, and Level III, available only in English. They are considered somewhat difficult exams, but anyone who has completed the necessary education and experience requirements should have no trouble. The CFA exam is offered each June, although the Level 1 exam is also available in December. 2020 is the final year in which these exams are completed on paper. As of February 2021, the exams are offered on computer four times annually, not online but in a testing center.
The Level I exam consists of 240 multiple-choice questions. Candidates have six hours in which to complete the exam, broken down into three hours in the morning and three hours in the afternoon. According to the CFA Institute, test takers should give themselves 1.5 minutes to answer each question.
The Level II exam includes 120 multiple choice questions that candidates must answer, with half given in the morning session and the other half in the afternoon.
The Level III exam consists of short essays and questions. The morning session includes between eight and 12 essay questions, while the afternoon session features 60 multiple choice questions.
There is no limit to the number of times candidates may take the CFA exam before achieving a passing score.
How is the CFA Exam Scored?
The chartered financial analyst exam is scored by both CFA charter holders and via machines. However, there is no exact passing score per se. A minimum passing score (MPS) is used to determine whether the candidate passed or failed, but this score differs annually. The CFA Institute calculates each year’s MPS by holding workshops for each exam level. Those involved in the workshop examine the test thoroughly. They go question by question, making educated decisions on how a basically competent candidate will perform. Once the various workshop participants collect and review their decisions, they then come up with a score range for that level exam.
The actual MPS is never released by the CFA Institute. It is considered to range between 60 and 70 percent by independent experts. Candidates do not receive a grade. The CFA uses a pass/fail system. Candidates do receive a summary of how they performed in each area. These summaries consist of below 50 percent, between 50 and 70 percent, and above 70 percent.
Those completing the Level I and II exams should expect their results within 60 days of the test date. Level III candidates may not receive results for up to 90 days.
Study Resources and Courses for the Exam
Passing the certified financial analyst exam means spending at least 300 hours in careful study. For practical purposes, that means devoting several hours every day of the week for at least three months to preparation. For the best results, you should consider starting your exam prep six months prior to the exam or longer.
It also means taking numerous practice exams to get a feel for the content and the way questions are structured. For example, there are only three possible answers for the Level 1 exam, but many of the answers consists of “all of the above” or “none of the above.”
Although the CFA Institute provides test prep material, it acknowledges that most candidates need additional study to navigate and pass the exams. If the money is available, candidates might consider hiring a professional tutor.
The CFA Mock Exam and Program Questions offers a placement test so candidates can concentrate on the areas in which they exhibited weakness. Mock exams are posted for registered users roughly two months prior to their exam date. The format is the same as the actual exam. The CFA also provides a list of approved exam prep providers.
The CFA exam is considered difficult. If you took standardized college tests such as the SAT or ACT, keep in mind that the CFA is harder. In fact, some of the questions are worded to trip up exam takers. CFA exams are graduate-level tests.
Approximately 300 hours of study is necessary for most students to successfully pass the exam. For example, the June 2018 Level 1 exam had a passing rate of just 43%. This is about the average amount of students who pass Level I and II, although the Level III average passing rate is somewhat higher at 56%.
Several fees apply to the CFA exams. First, there is an enrollment fee, a one-time cost which is currently $450. Each exam involves a registration fee of $950. However, you can save money with the CFA early bird discount, which drops the registration fee to $650. Those who do not enroll within the permitted timeframe for exam registration must pay a late fee which brings the cost up to $1,380.
Depending on whether you register late or early, your costs for the CFA exams will range between $3,300 and $5,000. That does not take into consideration the purchase of study aids. Most candidates should budget between $600 and $1,500 for each exam level for preparatory material. If a candidate has recently received a master’s degree in finance or a similar field or has spent significant time working as a financial analyst, his or her preparation time and costs will likely be lower.
The good news is that qualified candidates may receive scholarships through the CFA Institute.
CFA Careers & Salary
- Where Might You Work?
Financial analysts might work for banks, securities firms, professional and technical service companies, insurance and employee benefit companies, and mutual and other investment funds.
While these position are available nationwide and internationally, the states employing the highest number of financial analysts are:
- New York
As a global finance center, New York not only employs the largest number of financial analysts, but also pays the highest annual mean wage, at $134, 560. In Florida, the fifth-ranked state for financial analyst employment, the annual mean wage is $76,000.
- Career Outlook
The job outlook for financial analysts appears promising. The job growth outlook for the decade between 2018 and 2028 is 6%, as fast as the average job. The demand for financial products and professionals should continue to grow. This has always been a competitive field, and that will not change. Average salaries are already high, but some financial analysts earn very large sums above and beyond the norm when they work for well-known companies or very wealthy clients.
Earning CFA certification opens up a wide range of job possibilities. At 8%, the highest number of people with CFA certification work with securities, commodity contracts, and other financially related activities, as per the BLS.
Positions in which this certification is an asset or requirement, and their respective average salaries, include:
- Banking - $95,240
- Company Manager - $90,560
- Financial Investment Manager - $127,010
- Insurance and Employment Benefits Manager - $114,470
- Management Consultant - $97,520
Salaries will vary by region, with those analysts working on Wall Street or in major financial markets earning more money. Financial analysts working in non-metropolitan area can expect to earn considerably less than their urban counterparts. Besides securities, top-paying industries for CFAs include grantmaking services, specialized design services and support activities for mining.